Public
Bill
Committee

Tuesday
14 October
2014

(Morning)

[Martin
Caton in the
Chair]

8.55
am

The
Chair: Before we begin, I have a few preliminary
announcements. Please switch electronic devices to silent. Tea and
coffee, I am afraid, are not allowed during
sittings.

We
will consider the programme motion as on the amendment paper; a motion
to allow us to deliberate in private about our questions in advance of
the oral evidence sessions; and a motion to enable the reporting of
written evidence for publication. Given the time available, I hope that
we can agree the matters formally, without
debate.

Motion
made, and Question
proposed,

That—

(1)
the Committee shall (in addition to its first meeting at
8.55 am on Tuesday 14 October)
meet—

(a) at 2.00 pm on
Tuesday 14 October;

(b) at
11.30 am and 2.00 pm on Thursday 16
October;

(c) at 8.55 am and
2.00 pm on Tuesday 21
October;

(d) at 11.30 am and
2.00 pm on Thursday 23
October;

(e) at 8.55 am and
2.00 pm on Tuesday 28
October;

(f) at 11.30 am and
2.00 pm on Thursday 30
October;

(g) at 8.55 am and
2.00 pm on Tuesday 4
November;

(h) at 11.30 am and
2.00 pm on Thursday 6
November;

(2) the Committee
shall hear oral evidence in accordance with the following
Table:

Date

Time

Witness

Tuesday
14
October

Until
no later than 10.15
am

Confederation
of British Industry; Federation of Small Businesses; British Chambers
of Commerce; Institute of
Directors

Tuesday
14
October

Until
no later than 10.45
am

Thompsons
Solicitors

Tuesday
14
October

Until
no later than 11.25
am

Forum
of Private Business; Institute of Credit
Management

Tuesday
14
October

Until
no later than 2.30
pm

The
Law
Society

Tuesday
14
October

Until
no later than 3.15
pm

GMB;
Unison;
Unite

Tuesday
14
October

Until
no later than 3.45
pm

Toynbee
Hall; World Bank

Column number: 4

Tuesday
14
October

Until
no later than 4.15
pm

Trades
Union Congress; Chartered Institute of Personnel and
Development

The
Chair: Therefore, the deadline for amendments to be
considered at the first two line-by-line consideration sittings of the
Committee on Tuesday 23 October is 4.30 pm on this Thursday 16
October.

Resolved,

That,
at this and any subsequent meeting at which oral evidence is to be
heard, the Committee shall sit in private until the witnesses are
admitted.—(Jo
Swinson.)

Ordered,

That,
subject to the discretion of the Chair, any written evidence received
by the Committee shall be reported to the House for
publication.—(Jo
Swinson.)

The
Chair: Copies of written evidence that the Committee has
received will be made available in the Committee
Room.

I
am sorry to the public, who have only just entered, but I have to ask
you to leave again, because we are about to sit in
private.

8.57
pm

The
Committee deliberated in private.

Column number: 5

Examination of
Witnesses

Mike
Cherry, Katja Hall, Mike Spicer and James Sproule
gave
evidence.

9.3
am

Q
1The
Chair: Good morning to our witnesses. Thank you for
coming. Could you please introduce yourselves?

Mike
Cherry: My name is Mike Cherry. I am the national
policy chairman at the Federation of Small
Businesses.

Katja
Hall: I am Katja Hall. I am the deputy director
general at the CBI.

Mike
Spicer: I am Mike Spicer. I am the director of
research for the British Chambers of Commerce.

James
Sproule: I am James Sproule. I am the chief economist
and the director of policy at the Institute of
Directors.

The
Chair: Thank you very much. May I invite Toby Perkins to
ask the first question?

Q
2Toby
Perkins (Chesterfield) (Lab): I am particularly interested
initially in hearing from Mike and Mike on the subject of late
payments. Mike Cherry, you said in your comments on the Bill that it
was the view of the FSB that

“it is
imperative the Bill seeks to address the current imbalance of power
that exists in the relationship between creditors and
debtors.”

Can
you talk us through what your members perceive to be the current
problems with late payment and the impact that has? How successful do
you think the Bill will be in dealing with those
issues?

Mike
Cherry: First and foremost, as I am sure you are all
aware from what we have said, late payment is a huge problem for many
small businesses and especially for micro-businesses. In a modern
economy we believe that 30 days should be more than sufficient to
settle payments and Government suppliers should be signed up to be
compliant with the prompt payment code. That is where we have seen
initiatives fail inasmuch as they have not enabled the culture change
that we feel is needed to occur. So you have a prompt payment code that
nobody seems to abide by or, if they do, they abuse it. You have the
supply chain initiative which people are extending their payment terms
against.

In 2008
£18 billion was owed to small and micro-businesses and that
figure has now gone up to something like £46 billion. So you can
see that the whole agenda is moving in favour of the large companies
who are increasing their margins. They are using small businesses as
their banks to the detriment of small businesses, particularly as we
come out of the recession, when cash flow will be even more important
for those businesses as they continue to try to grow their business and
create more jobs. We believe the Bill goes some way towards that, but
one of the things that we on the panel are probably all agreed on is
that we need to change the culture. We also need to show those who are
exemplars as significant beneficiaries to their supply chains who value
their supply chains and pay promptly. That is one way that we can
stimulate some change here.

Q
3Toby
Perkins: We all agree that we need to try to change the
culture. Sometimes you can change the culture by changing the law and
sometimes you do it the

Column number: 6

other way round. In terms of the specific provisions in the Bill, is
there anything that you think will deal with the fact that we have
companies who are quite happy to say that their payment terms are 90
days or 120 days? Effectively, we have two issues: businesses that have
very long payment terms and businesses that do not comply with the
payment terms. What measures will make a big difference and what more
should be in the
Bill?

Mike
Cherry: We would certainly like to see a mandatory
prompt payment code for larger firms included in the Bill to encourage
a more rapid cultural change with regard to late payment. We support
the measures included in the Bill which allow the Secretary of State to
force a business to provide an explanation if a payment is late.
Current reporting requirements only produce a snapshot of a
company’s payment terms at that particular moment. More needs to
be done in this area but the provisions in the Bill start to address
some of those problems.

Q
4Toby
Perkins: Mike, may I ask you the same
question?

Mike
Spicer: Our position is essentially the same as the
FSB’s. The last time that we went out to our full membership on
this issue was about two years ago. We have not gone out to them since.
Things may have changed. Some of the issues that we tested back then
related to who were the worst offenders. As Mike said, the large
private sector companies tend to be worst here. In terms of what can
make a difference, apart from what we have said so far, we have always
said that there should be a better system of reward for good behaviour
as well as a punitive system for bad behaviour. There is always room
for example as well as punishment. We should like to see further
measures taken forward in that respect.

Q
5Toby
Perkins: It may be helpful to hear from James and Katja.
We have heard small businesses saying how significant an issue this is
for them. What would your bodies think about the prompt payment code
being mandatory and this moving beyond being something that we hope
businesses will take positive steps
on?

Katja
Hall: Our view and the view of our members is that
late payment is a huge problem for the UK economy and it stands at some
£30 billion. We have got ourselves into a situation in which it
has too often become the norm to pay late or to extend contract terms.
Ultimately, we need to change that by changing the culture. We should
consider how to nurture supply chains in the round. Large companies
should be looking at how to strengthen and grow their supply chains,
part of which includes paying on time. It is important to have some
flexibility on payment terms. The complexity of contracts will vary and
what is suitable for a retailer might not be appropriate for a defence
company, but payment terms should be stuck to once
agreed.

The
best way of getting culture change is through transparency. Ultimately,
companies will need to want to do this. Partly, if I am honest, this is
about ensuring that it is not just seen as an issue for the finance
director and that it is something that the company must consider as a
whole and should be discussed at board level, because it is about
corporate responsibility. For that reason, we think that the measures
to promote transparency around publishing payment terms on a
comply-or-explain basis would be the most effective way
forward.

Column number: 7

Q
6Toby
Perkins: We have had the EU late payment directive and the
prompt payment code, but they have not taken us to where we want to be
on late payment, so is there anything in the Bill that will make the
seismic shift from where we are to where we want to
be?

Katja
Hall: I think the Bill will help and, ultimately,
greater transparency in publishing payment terms is an important step.
I support both of my fellow panellists’ views that we should
also be doing more to reward or recognise companies that are taking the
matter seriously and are taking action to ensure that they pay on
time.

I
am quite keen to look at how we could improve monitoring of the code. I
am not convinced that we should give it statutory backing, because
ultimately businesses need to take a leadership role on the issue.
There are some similarities to what we have seen on diversity in recent
years, where business has taken a view that something is not
acceptable. It affects all of us. It actually affects a lot of our
large firms as well as small firms. We all need to take action to
address
it.

Oliver
Colvile (Plymouth, Sutton and Devonport) (Con): First, I
should declare an interest in that I am a member of the Federation of
Small Businesses and still have an interest in a small communications
company, although I do no work for it at
all.

When
I was running my small business, one issue was that I would not want to
upset my clients too much, because that would end up with them taking
their business elsewhere. First, how can we try to get over that? By
the time that you start using the law and everything like that, the
relationship will have broken down in no uncertain terms. Secondly, why
do you think that large businesses are not quite so willing to pay
their bills in due time? Is it because they set out to do it or is it
because they think that they can use the money better without giving it
to the small
business?

Katja
Hall: I think that your first point is really
important. Ultimately, what we want are good relationships between
companies within the supply chain. Anything that makes the relationship
confrontational or antagonistic is not in anybody’s interest and
will not work in the long term. This is about everybody realising that
the UK benefits from strong, healthy supply chains. Prompt payment is
part of that. It is not the only part, but it is
important.

On
your second point, it is a mixture of things. Sometimes, it is about
large firms needing to ensure that they deal with payment promptly,
including whether they have the systems and processes in place for
actually just physically logging and paying bills. There is also an
issue that probably developed during the recession when finance
departments were being cautious, sticking closely to payment terms and
certainly not paying earlier than they needed to. We need to change
that culture. Paying on time and not having excessively long payment
terms needs to become the
norm.

Mike
Cherry: I think we need to go far further in some
ways, because with current interest rate levels it quite clearly does
not make sense to be using small businesses to bankroll large
businesses in the way that is happening. We also need to make quite
clear just what prompt payment means. Toby mentioned the EU directive
that came into force back in March 2013. It comes back to the whole
problem around enforcement. You have

Column number: 8

the ability to add interest to outstanding accounts,
but quite frankly that does not put the money into the bank when the
small business needs it.

I believe we
need to go much further than we have. We need a mandatory code in the
Bill. To address some of the problems that we often
hear about of small businesses
being equally bad about late payment as larger businesses, there is a
case for looking at staggering it over a certain period, as has
happened in the past with various issues around Her Majesty’s
Revenue and Customs and taxation. That is perhaps one way of bringing
in a mandatory and statutory code that would get the culture to change.
Unless something enables the prompt payment code to have real teeth, I
do not feel that we will change the culture overnight. That is what
actually needs to happen to get the money that is owed to small
businesses into their bank accounts, and not held back by their larger
customers.

Q
7The
Minister for Business and Enterprise (Matthew Hancock): On
the point about the prompt payment code, I am interested to understand
why, when we went out for consultation, including on that option, the
FSB’s response was not to have mandatory payment terms, but you
now are calling for a mandatory prompt payment code. We went out to
consultation with all of the options and the Bill broadly reflects the
response of all business groups to those options as they were laid
out.

Mike
Cherry: Minister, I will address that with two
points. First and foremost, at that time I believe we had not had the
Bacs figures, which have shown—if my figures are
correct—that the figure has increased since last year from
£33 billion to £46 billion. That shows that abuse of the
supply chain is happening and nobody is taking notice of being signed
up to the prompt payment code. If you look at the numbers of the FTSE
100, 250 or 350 that are signed up to it and then those that abide by
it, again, it is not sufficient at this moment in time. We have
therefore always said that, ultimately, if a mandate was required we
would be calling for that. Unless we can change this fairly quickly, we
believe a mandatory code may have to be brought
in.

Q
8Mr
Iain Wright (Hartlepool) (Lab): Good morning. Mr Spicer,
you said that there needs to be a reward for good behaviour. What does
that reward look like, and does the Bill have
it?

Mike
Spicer: When we conducted our survey on late payments
two years ago we published a paper alongside it, which I am happy to
resubmit to the Committee. From memory, we made a number of
recommendations in that. One related to giving the prompt payment code
more teeth, which is what is being proposed here. On the other, when we
are talking about culture change, part of that is to say, “Look,
it is good business practice with your supply chain to have clear
payment terms and stick to them.” My feeling, and the feeling of
our members, is that there could be some kind of kitemark scheme, for
instance, where if you meet a certain standard that perhaps goes beyond
the mandatory, that is something you could publicise. Perhaps it is a
bad analogy to say that it is analogous to the Investors in People
scheme, but it would be something like that, which would be visible to
those companies that were looking to do business with others. Although
that might not be the whole picture it would be welcome and could be
part of the mix.

Column number: 9

Q
9Mr
Wright: Are there particular sectors that are good in
terms of having good, efficient relationships with their suppliers and
good, effective prompt payment? Are there sectors that are
particularly bad, which might go to 120 or 180
days? Is there a sector-by-sector approach to solving late payments as
well? That is to all the witnesses.

Mike
Spicer: Briefly, I am not aware from the data that we
have that there are particular sectors that are worse than others,
although other panellists may have a different view. What I can tell
you is that when we tested this a number of years ago, the vast
majority of the several thousand businesses that were included in that
survey had experienced late payment at some point and were dissatisfied
with the payment terms that they got on occasions. Given that our
membership is extremely broad-based and we see it across our
membership, my sense is that this is widespread. It is not that it is
particularly concentrated in one industry and not occurring anywhere
else.

Katja
Hall: I agree with that; I think it happens across
lots of sectors. We need to be careful, though, to distinguish between
commercially agreed payment terms, which might be commonly 30 days for
one company in one sector and, for good reasons, 60 days in another,
and the issue of late payment, which is ultimately a more serious
problem. We need to be careful not to interfere in commercial
relationships where they work well for both
parties.

Q
10Ian
Murray (Edinburgh South) (Lab): Good morning, everyone. I
have two questions. The first, which is probably to Mike Cherry, is
about the impact on small businesses. Many small businesses use payment
terms as a form of cash flow, so if this was not a whole-industry
solution, what kind of impact could the rules have on them? The second
question is about the impact of invoice financing. Could that mechanism
make the problem worse, or is there the potential to find a better
solution across all
sectors?

Mike
Cherry: On the question of payment terms, if
something mandatory was to be brought in, staggering would answer that
question. On invoice financing, that is a very interesting initiative
and you are seeing some other players coming into that market space. It
is not suitable for all businesses and I do not believe that it should
be treated as the norm when what we want is for payment to be made
promptly into the bank so that the business has the money, not the
customer.

If I can come
back on the question of sectoral issues, our membership is very broad
and I think there are some issues in particular sectors—we know
the construction industry has a particular problem in certain
areas—but also the idea that businesses have to pay up front to
be on a supplier list, when that does not guarantee business or
retrospective discounts, is an issue that needs to be
addressed.

James
Sproule: May I come in on invoice financing? We think
that this is an exciting new area and that it will be growing. I think
it has potential, along with other newer methods of lending, and one of
the frustrations that a lot of business people have felt across the
country as a whole has been with the finance system in general over the
past few years. The way in which companies need finance regularly comes
in the top half-dozen concerns of the members of the Institute of
Directors, which I think is unsurprising to everyone in this
room.

Column number: 10

On the whole
issue of late payments, we do not wish to make prompt payment
mandatory. The committee that has been set up,
which the IOD supports, is a very good first step
and the publishing of perennial late payers is a good idea. In invoice
financing, those people would find steeper discounts and their
suppliers would reflect that price back on them and say,
“You’re a bad payer.”

I have worked
for companies where, to be perfectly frank, it is a nightmare to get
any invoice paid and I know that, if I get it out in 60 days, that is
only because I did an enormous amount of leaning on the treasury
department to pay anything. That is frustrating for me as someone who
wants to be a good supplier, but there is a lot of internal
bureaucracy, particularly in these larger companies, which is
problematic.

Q
11Toby
Perkins: On invoice financing, that is businesses paying a
premium to get money that they were owed anyway, which seems like a
solution that has developed because we never solved the problem. Surely
what we should be promoting is a positive
solution.

James
Sproule: It is absolutely a problem if it allows
companies to manage their cash flow better. Of course, you could turn
the invoice into invoice financing long before it was due. As Katja was
saying, you may have a bill that is on 60-day or 90-day payment and you
decide to turn it into invoice financing after 15 days. That could be
completely within the contract, but you have decided that you would
rather have the cash up front and you are using the invoice as
collateral to advance the cash flow for your own purposes. So you have
signed a bill and nobody is paying late at all; it is just allowing the
company the
flexibility.

Q
12Nicola
Blackwood (Oxford West and Abingdon) (Con): My
understanding, Mr Cherry, from small businesses in my constituency is
that their major problem is that they simply do not want to make use of
their current breach of contract powers to take on a big business for
late payment because they do not want to lose that client, supplier,
contract or whatever. I am not sure how a mandatory prompt payment code
would change that as small businesses would still not want to
whistleblow on big businesses because they still would not want to lose
that relationship. Surely the transparency proposals change that
dynamic as the small businesses will not have to do the whistleblowing
because the transparency will just be there for them. What do you think
about
that?

Mike
Cherry: I think if you have adequate transparency and
reporting then that goes some way to dealing with the issue of making
it more visible. However, it will not, I believe, solve the problem of
ensuring that the money is paid promptly rather than being able to add
interest or just knowing that that particular company is likely to pay
you
late.

Nicola
Blackwood: But how would the mandatory prompt payment code
ensure that if the small businesses are unwilling to come forward
because they still do not want to take on the big
businesses?

Mike
Cherry: If you have a mandatory prompt payment code,
surely that means that you mandate that the businesses will be paid on
time.

Column number: 11

Nicola
Blackwood: Not if they are not coming forward. Can I take
you back to access to finance? I want to know what your views are on
some of the other measures in the Bill, especially the proposals to
bring forward the release of non-financial VAT registration. I think
that is intended to increase the availability of trade credit for
smaller and newer businesses. Obviously, they sometimes struggle to get
access to finance because they do not have a credit history and so on.
Does the FSB welcome
that?

Mike
Cherry: We do. We welcome the measures that impose a
duty on designated banks and credit reference agencies to provide
specified information about their small and medium-sized businesses.
The sharing of some of the VAT information that HMRC holds is to be
welcomed because credit scoring is one of the areas that is, we feel,
still opaque and not as transparent as it needs to be. Making more
information available—as long as who is and who is not able to
have it and the information that is or is not supplied is properly
monitored—is absolutely key to this. That should indeed help
access to finance by making it easier for people to see the credit
scoring, how a business is actually judged to be performing on its
terms and everything else that it has to deal with, so we welcome those
provisions in the
Bill.

Nicola
Blackwood: And do you also welcome the invoice
financing?

Mike
Cherry: Invoice financing goes a certain way to
dealing with some of the problems, but as I said a moment ago, it still
does not get money into the bank when the business should have
it.

Nicola
Blackwood: What about the cheque imaging
reforms?

Mike
Cherry: We very much welcome anything that speeds up
the clearance of cheques. In this digital age, cheque imaging is
certainly something that we
welcome.

Nicola
Blackwood: It is very encouraging. I have heard that we
would be leaders in the EU on that; we should all welcome that. What do
the other representatives think about the access to financing and the
cheque imaging reforms in the
Bill?

Katja
Hall: We support the access to finance and the credit
sharing for two reasons. First, we think it will ultimately lead to
better decisions because finance providers will be able to have more
information at their disposal on which to base their decisions.
Secondly, obviously, it will improve access to finance for small and
medium-sized enterprises so we welcome the Government’s approach
on the access to finance
proposals.

Mike
Spicer: I would echo what Mike and Katja have said.
At the moment we have a highly concentrated business banking sector. We
have five really large players and a very long tail of small players.
One of the reasons why that situation has persisted over the years is
the incredibly high barriers to entry that there are. One of those
barriers to entry is access to information in a way that allows smaller
players to play a bigger role in the market. This is one way that we
can help to address that through legislation, so we applaud it and
support
it.

Nicola
Blackwood: Mr Sproule?

Column number: 12

James
Sproule: I agree with the things that have been said
inasmuch as I think there are the beginnings of quite serious new
players coming into the market and that is going to be welcomed by all
businesses. A much greater range of financing options is to be
applauded. Things such as credit scoring and so on being more readily
available simply aids that and I think will aid
business.

Oliver
Colvile: May I also express my thanks to you for coming
and giving evidence to us? Have any of you changed your mind on the
issue of prompt payment? Have you moved at all since you began to think
about all this?

Katja
Hall: I do not know whether we have changed our
minds, but I have to say that the more we have talked to companies, the
more we have realised what a big issue this is. What surprised me is
that it is not only a very big issue for small firms, but it is a big
issue for some of our large members too. I think this is a much bigger
problem than perhaps we had realised, and also it is an issue that is
perhaps not only related to the recession. That is why I think that the
proposals in the Bill to increase transparency are important.

James
Sproule: As somebody said before, it started because
in a recession, clearly what you do is to string everything out as much
as you can because it helps your cash flow. You are probably having
your own invoices strung out as well, so there is a knock-on, domino
effect. As time has gone on, people have not tightened up their payment
procedures because they still find that it is advantageous to them.
Obviously, we would all agree that small companies are particularly
vulnerable to that type of behaviour and find it particularly difficult
to deal with.

Q
13Mark
Garnier (Wyre Forest) (Con): Mike Cherry, clause 33 of the
Bill looks at public sector procurement and requirements on the public
sector to make it fairer for tier 1 suppliers. What it does not
necessarily do is to pass on those payment policies further down the
supply chain. Do you think that the Bill misses an opportunity
here?

Mike
Cherry: I think that the Bill misses a huge
opportunity there, because when tier 1 suppliers are paid promptly,
that should be reflected all the way through their supply chain.
Wakefield council uses a very good clause in its procurement contracts
to suppliers, and I think that that is something that should be looked
at. The replication of such a clause could be encouraged right across
the public sector. The public sector can almost lead by example, if I
may phrase it in such a way, in making sure that its supply chains
adhere to prompt payment by inserting that clause, or a similar one.
Doing so would certainly show that the Government mean to have some
teeth behind this, by making sure that that happens right across the
whole public sector—not just central Government but local
authorities, the NHS, the MOD and others.

Q
14Mark
Garnier: Do you not feel, though, that central Government
can mandate everybody to do all sorts of things, but what you are
talking about is where local authorities and local procurement
organisations, such as the MOD, can actually put this in their
contracts

Column number: 13

anyway, and we should be encouraging them to do so rather than
necessarily mandating that they do so at this
stage?

Mike
Cherry: Yes, I think that they should be encouraged.
Part of the problem is that they do not often share good practice, or
what works well, sufficiently or quickly enough, and trying to make
sure that organisations such as the Local Government Association can
assist with that would be a really beneficial step forward. When you
look at the aggregation that sometimes happens in the public sector on
procurement contracts, you miss a trick, because you do not extract the
value that I believe small businesses can bring to a supply contract;
you look only at the pure and simple cost, which often has an
unintended consequence or additional cost further down the
line.

Q
15Mark
Garnier: Katja Hall, do you see any practical problems
with mandating a series of individual people in the supply chain to
follow—rather like a train going out of Euston, everybody has to
do the same thing?

Katja
Hall: I agree that the public sector should be
leading by example. I guess I question the extent to which legislation
is the solution here. I think that legislation has a role to play, but
ultimately this is about culture change and about trust. It is about
large firms, whether they are tier 1 contractors or other large firms,
recognising their broader responsibilities to their supply chains. We
have got to change the culture, and I believe that the most effective
way to change the culture is through
transparency.

Q
16Mr
Wright: May I ask two questions on this? Clause 33 will
bring forward regulation in respect of public sector procurement.
Should those regulations explicitly state that the Government should
ensure the kitemark of good prompt payment, and if that is not
demonstrated, you cannot bid for Government contracts, whether
centrally or locally? Should it be as blunt as
that?

Mike
Cherry: If you want a simple answer, then yes, if
that is what is
needed.

Katja
Hall: I think our members would—if that is
what the Government want to do, that is up to Government. We just need
to be clear about what the implications are more broadly. We need to be
clear on what we want contracts to cover and what we want them to
specify. In principle, public procurement can be an important lever,
but I am not sure it is a legislative solution that is
needed.

Mike
Spicer: I would agree with the principle. Anyone who
has direct experience of public procurement could tell you that all
sorts of things are asked for in any public procurement process, either
at the pre-qualification stage or in the final stages. Those things
range from environmental credentials to social riders, potentially, in
this day and age. I do not see why prompt payment could not be one of
those things. As Katja says, there could be some transitional issues in
implementing that in reality, particularly when we are talking about a
context where we are moving more and more into a world of large
framework contracts, where the cat’s cradle of suppliers gets
more and more complex by the year. I do not want to say that there is a
legislative lever that you could pull in this case, because we would
prefer to go back to our members on that, given that there are a number
of ways that that could go.

Column number: 14

Q
17Sheryll
Murray (South East Cornwall) (Con): Following on from
that, one of the biggest concerns expressed by local businesses and my
constituents is over-regulation. The Government have been clear in
their commitment to cut red tape. The Bill enshrines in law the
statutory deregulation target to be reviewed each year. Will your
members welcome that? If we start with Mr Cherry, then the rest can
answer.

Mike
Cherry: I think we very much welcome what is in the
Bill, because clearly the overall burden of regulation is mixed. There
is some evidence that the net burden is still growing, but perhaps
slightly more slowly than it has done, so we welcome the initiative of
one in, two out that the Government have introduced in the past two or
three years. The FSB’s last member survey clearly highlighted
that the overall regulatory burden remains high. Two thirds of
respondents said that there was far too much regulation, and some 40%
said that the cost has gone up considerably. We still see that very
much as being a problem
area.

Q
18Sheryll
Murray: Do you welcome, then, the statutory deregulation
target in the
Bill?

Mike
Cherry: We welcome the target. We obviously want to
see it implemented and delivered
on.

Q
19Sheryll
Murray: And a review each
year?

Mike
Cherry:
Yes.

Q
20Chris
White (Warwick and Leamington) (Con): One of the most
important parts of the Bill is its reference to zero-hours contracts.
Mike Cherry, the FSB has said that there may be a limited number of
cases where an exclusivity clause might be justified. Can you give some
examples of where that would be the
case?

Mike
Cherry: Yes. It is important to put this in context.
Only 7% or 8% of our members use zero-hours contracts. Their use is not
widespread across small and medium-sized businesses. Where it works for
both the employer and the employee, there is a case to be made for
allowing the contracts to happen, so a code on zero-hours contracts is
an important step forward. What you will find is that where there has
been abuse—that is probably what has led to this issue being in
the Bill—it is more widespread in the public sector and in large
businesses than in the small business
sector.

Q
21Andrew
Griffiths (Burton) (Con): It is good to welcome a fellow
Burtonian to the Committee. Mike, it is good to see you here. I have a
question for you on the regulation of pubs, which is an issue that has
been of concern to Parliament for 10 years. We have discussed
it on a number of occasions, but this is the first time in
10 years that a Government have introduced regulation in
this area. Do you broadly welcome the introduction of the statutory
code and the pubs code adjudicator?

Mike
Cherry: The simple answer to your question, Andrew,
is yes, we very much welcome the introduction of the statutory code and
the adjudicator. As you know from our written submission, we have
reservations about whether the adjudicator will have sufficient powers
and whether there should be a free-of-tie option in
the

Column number: 15

marketplace. However, that could happen in the next Parliament if these
initiatives prove not to work as stated in the
Bill.

Q
22Andrew
Griffiths: You mention extra powers that you think the
adjudicator might need. Could you give us a little more information
about what they might be?

Mike
Cherry: I think what is in the Bill is a
process-driven option that will allow the tenant to take issues to the
adjudicator, but we have some concerns about whether it will actually
work in practice. It very much depends on who the adjudicator is and
how they deliver on the intention behind the
Bill.

Q
23Andrew
Griffiths: So the devil is in the detail, but you broadly
welcome the idea that tenants will have access to the statutory code,
which will give them rights, and the ability to take concerns to the
adjudicator. You mention the free-of-tie option, but do you believe
regulation in that area should be based on the behaviour of the
companies concerned or on the structure of the business
model?

Mike
Cherry: Can you elaborate on what you mean by the
structure of the business
model?

Q
24Andrew
Griffiths: By that I mean, do you think we should regulate
on how each individual tenant is treated by the pubco that they have a
contract with, or do you think we should be looking to fundamentally
change the formula of the modal and intervene in the market in a
radical way?

Mike
Cherry: It is clear—the independent evidence
that we did in 2013 highlighted this—that for too long tenants
have not had a fair deal from the larger pubcos. Therefore, I suggest
it is the structural model that has to be changed, rather than the
individual.

Q
25Andrew
Griffiths: Okay. I suggest to you that if the tenants are
not getting a fair deal, giving them access to the adjudicator through
the statutory code should allow them to do that.

Finally, have
you seen the report compiled by London Economics on behalf of the
Department for Business, Innovation and Skills, which suggests that a
free-of-tie option would lead to the closure of 1,400 pubs and the loss
of 7,000 jobs? Do you have a comment on that
report?

Mike
Cherry: I have a question about that report. Over
time we have seen so many publicans forced out of business by the way
the pubcos have damaged them. That, rather than the report, is behind
this issue.

Q
26Nicola
Blackwood: I want to come back to the issue of
over-regulation and the deregulation target, because we heard Mr
Cherry’s views but we did not hear the views of the rest of the
panel. I wanted to hear what the panel thinks about the deregulation
measures in the Bill.

Katja
Hall: We support and welcome them. Ultimately, the
whole Bill is about encouraging growth in small and medium-sized firms.
Deregulation is an important part of that, and so is the enforcement of
legislation—we support strong enforcement of things such as the
minimum wage—prompt payment and access to
finance.

Column number: 16

Q
27Nicola
Blackwood: And specifically on the
deregulation
target?

Katja
Hall: Yes, we support it.

Q
28Nicola
Blackwood: And you would expect future Governments to
abide by it as well?

Katja
Hall: Yes, I think we should definitely build in the
progress we have made during this
Parliament.

Q
29Nicola
Blackwood: Thank you. Mr
Spicer?

Mike
Spicer: I think having a statutory target such as
this is something we would support, but I would add a few things to it.
It really does matter how the target is designed. At the beginning of
this Parliament, we started with a one in, one out policy, and there
were significant challenges about how that operated in practice. In
particular, it could, in a sense, be gamed if you had deregulatory
measures in one Department, for instance, and regulatory measures in
another. There was not necessarily a whole-Government approach when it
was first introduced. Now we are in the world of a one in, two out
policy, which addresses some of those issues, but there are still
things that are in scope and things that are out of scope.

When we talk
to our members, one of the big concerns around regulatory burden these
days is tax administration, and that is currently out of scope of the
one in, two out target. We would urge that we look at that closely
again to make sure the right things are within scope of the target. In
principle, the idea of legislating for a target like this is something
we could support, but I do not think we could just leave it there; we
have to look closely at how it is
implemented.

Q
30Nicola
Blackwood: So you would say that the British Chambers of
Commerce support an evidence-based and effective deregulation
target.

Mike
Cherry: Yes.

Nicola
Blackwood: And Mr
Sproule?

The
Chair: I will come back to you, but I want to invite
someone else to come in.

Q
31Toby
Perkins: I apologise for the fact that we are hopping
around slightly, but I want to take us back to the pub companies issue,
Mike. The proposal in the Bill is that a tenant who feels they have an
unfair deal should have the right to request that a surveyor, following
Royal Institution of Chartered Surveyors guidelines, tell them,
“Here’s what you would have won if you were on a
free-of-tie basis.” That would be for information’s sake,
and they would not be able actually to move to that free-of-tie basis.
That seems a rather complicated way of offering a guarantee that you
will be no worse off than you would be if you were free of tie, and
there is no enforcement method. Can you think of any industry where a
similar thing actually works successfully? Do you have any confidence
that this will provide the fairness that everyone thinks we so
desperately need in the industry?

Mike
Cherry: I think we have made it very plain that we do
not think this goes far enough. It is an interesting idea to have a
parallel rent review, but how it is delivered and what it means in
practice to the tenant is the question behind this that we all need an
answer on when this actually comes into
being.

Column number: 17

Q
32Toby
Perkins: Absolutely. Throughout the debate about pub
companies, there has been a real desire among people on all sides of
the question to ensure that unnecessary bureaucratic or compliance
requirements are not placed on small family brewers, which have never
been seen as the cause of these issues. As proposed at the moment, the
code would introduce considerable compliance requirements on quite
small family brewers. Do you think the balance between what is in the
enhanced code and what is in the statutory code is right?

Mike
Cherry: No. The problem we have always recognised as
far as the tenants are concerned is the pubcos, not the family
brewers.

Q
33The
Chair: Before we move on, Mr Sproule, did you want the
opportunity to reply to what Ms Blackwood said?

James
Sproule: Yes, please. Absolutely. We certainly
recognise that the target is a good one, and we fully support it. The
problem of cutting red tape is difficult for all Governments, whatever
party is in power at the time. I am slightly struck that some people
who are suggesting that we have a statutory late payments code want, at
the same time, to cut red tape. I think there may be a tension there
that has not been fully explored.

I leave you
with one quick anecdote. I went over to the Google campus recently. I
was talking to people there and to all their entrepreneurs. I said,
“How do you deal with employment legislation?” Their
reply was, “Well, it’s very simple. If you’re the
kind of person who wants to pay attention to employment legislation,
you’re not the kind of person who wants to work here.”
That was simple: they just ignored it. I was slightly shocked. I
thought, “This all works until something goes wrong.” At
the same time, it is an interesting view as to how one of the more
entrepreneurial ends of the UK economy views a lot of the
legislation.

Q
34Nicola
Blackwood: That is interesting, Mr Sproule. Do you support
the tribunal changes in the Bill?

James
Sproule: I would support the tribunal changes that
have come through in the last few years to stop nuisance tribunals. I
have first-hand experience with that type of thing, so I think those
have been very positive steps.

Q
35Nicola
Blackwood: Do you support the Bill overall? Do you think
these are positive measures?

James
Sproule: Yes. The Bill overall—we think it is
very good.

Q
36Anne
Marie Morris (Newton Abbot) (Con): A lot of the Bill is
technical. It makes a number of minor amendments to try to ensure that
we get fair play. Part 7 specifically addresses transparency in
companies. It includes a number of technical amendments, but the one
that struck me—I wondered whether you felt it might or might not
give rise to problems—is clause 76, which changes the Companies
Acts so that all company directors have to be natural persons. There is
a get-out-of-jail clause, which says that there is not a prohibition
against the holding of office of director by a natural person as a
corporation sole or otherwise by virtue of office. Do you feel that
that will be difficult? Is it a technical change that you welcome? As
we are in this area of

Column number: 18

transparency, are there any other comments you would like to make about
part 7? Maybe I could start with James this
time.

James
Sproule: Okay. This is probably within the part of
the Bill that caused the IOD most discussion. We took a lot of evidence
and talked to a lot of people about it. While our view is clear, it is
one that is on the preponderance of evidence, not one that is
particularly clear-cut. In general, the transparency and the
desirability for transparency is what eventually pushed our position,
and therefore we welcome the view that it should be a natural
person.

There was a
significant minority of people who said that this has potential for
driving away inward investment in the UK, that we are never going to
get a level playing field internationally, particularly with places
like Delaware, which is not going to adopt this type of legislation.
Within the UK broadly, places like Guernsey were significantly
concerned about this sort of thing. That said, on balance we are still
in favour of having a natural person. We do want someone to be
accountable.

There was
some debate as to whether somebody could be a director who would be
under the instruction of somebody else. That is not my understanding;
my understanding is that if you are a director you are responsible and
you cannot say, “But I was being told by somebody else.”
That does not matter at all. You are the director; you are responsible;
it is on your shoulders. We had a lot of debate and came down firmly in
favour of this as a good idea.

Mike
Spicer: We do not have a view on that specific
clause. If I may, I shall turn to the one about the register of people
with significant control, which is in the same area of the Bill. That,
too, caused some interesting conversations internally. On balance, we
support it. The key thing about transparency is that when we engage our
members on that topic, it is clear that most of them feel quite
strongly that they are transparent already, and if other
businesses are not being transparent, they should be.

The only
rider I would add is that if you are asking companies themselves to
produce registers like this, it has to be designed in a way that
minimises any regulatory burden, for the same reason that James
mentioned earlier, which is that we can all support the idea of trying
to minimise and bring down the regulatory burden on business, but these
sorts of tensions do crop up when we have clauses like this. We need to
be really careful about how it is
implemented.

Q
37Anne
Marie Morris: A fair point; thank you.
Katja.

Katja
Hall: We do not have feedback on the specific
clauses, but in principle we back the establishment of a beneficial
ownership register. I think that is good and enhances the UK’s
reputation as a good place to do business, so we support it. There is
some detail we need to get right, but broadly we are encouraged by
where we are at the moment in those discussions. There is an issue
about the UK being ahead of the game and it is important that we
persuade other countries to follow the UK and to make their registers
public.

Mike
Cherry: We obviously do not have any statistics on
this. It is not an issue that our members bring to us. Greater
transparency is something that we would always

Column number: 19

support. The only slight concern we could see when we looked at this
clause is that it could prevent a VC firm from being on the board of
a high-tech start-up, but that is the only issue
behind this that could cause a
problem.

Q
38The
Parliamentary Under-Secretary of State for Business, Innovation and
Skills (Jo Swinson): On this clause and some of the later
ones, we will obviously scrutinise the detail to ensure we get that
right. Katja alluded to the overarching theme of trust and
transparency, but I would like to probe further and ask the other
members of the panel about it. How important do you think the
UK’s reputation and leadership on corporate trust and
transparency are, and what benefits can they deliver for our
economy?

Katja
Hall: That is very important. We want to be seen as a
good place to do business and we want to encourage investment. I think
we start from a position of strength. We already have good corporate
governance; we should remember that and be proud of where we are
already, but we should be looking at what more can be done. A
beneficial ownership register is something we could support, and we
also support the provision on disqualification.

Mike
Spicer: On transparency, we can turn the question
around and say, “What happens if you don’t have
transparency? Where does that lead you?” If we look across the
economic landscape, our members have certainly complained in the past
about a lack of transparency in areas such as access to finance. We
have already talked about payments and the opacity that can sometimes
surround them. That is where it gets you if firm action is not taken to
embed transparency. I think that is why our members instinctively tend
to support measures intended to promote transparency. However, we have
to be careful about how we implement that and ensure that, if there is
a burden—for instance, if they are required to produce something
for themselves—that is done in partnership with the business
community.

James
Sproule: I want to make two very quick points. One of
our great advantages as an economy is that we are probably the most
globalised economy in the world. An enormous amount of that
globalisation comes down to trust—trust in our legal system,
trust in our companies and in the transparency within them, whether
they are listed on the London Stock Exchange or are privately held.
That is recognised around the world as an enormous advantage and one
that we should certainly not
squander.

On
the beneficial ownership register, I would caution that, although it
may be a good idea, let’s not kid ourselves that it is the
be-all and end-all. It will be updated once a year and a fair number of
people said in our consultations, “It’s going to be out
of date within minutes of being published.” I do not think it
will be out of date quite as fast as that, but one should not think it
will be a final document which tells you about the ownership of
companies. It gives a snapshot at one point, and it may well change
quite significantly over the course of the
year.

Mike
Cherry: Trust and transparency are absolutely
critical. That is why we fully support other bits of the Bill that will
deal with some of those
areas.

Q
39Oliver
Colvile: The business impact target would not apply to
tax, procurement or financial assistance by local authorities or public
authorities as a whole. Do

Column number: 20

you think those should be brought into the Bill’s scope? Should
the Government and local government be taking the lead by ensuring that
they deal with prompt
payment?

Mike
Spicer: I mentioned in my previous answer that one
issue with the design of the one in, two out target is that it does not
cover tax administration. That is an area in which our members
increasingly talk about there being a burden—because, I suspect,
there has been action in other areas and they are becoming less of an
issue. Should local authorities and other public bodies be taking a
lead in prompt payment of public procurement? Yes, they should. In
fairness to them, when we carried out our survey a number of years ago,
the public sector was seen to be a better performer in terms of prompt
payment compared with large private sector companies. The issue was not
so much late payment or even the payment terms; it was that they were
perceived to be harder to engage with when there was a problem than
their private sector partners, so I would put a slightly different
emphasis on it. Of course, there are a number of measures in the Bill
that strengthen some of the moves towards consistency in public sector
procurement, and we support
those.

Q
40Oliver
Colvile:Do you think it would be a good idea for
all the organisations to identify how quickly they pay their bills,
either on their websites or in company
reports?

Mike
Spicer: Do you mean public
authorities?

Oliver
Colvile:
Yes.

Mike
Spicer: Yes, I do. Some of them do it already, though
they are not mandated to. That is a valid thing but, as I say, our
evidence suggests that local authorities are not particularly bad
performers in the area of prompt payment; it is that they can sometimes
be less easy to resolve issues with when they occur. Simply publishing
the performance would, in itself, give you the full picture of the
experience of businesses.

Oliver
Colvile: I think we should have a league table to see who
the best and worst ones are—naming and shaming them.

Q
41Chris
White: Just picking up that point from Mike Spicer, it is
a very interesting comment that rather than “late
payment”, we convert that into “less easy to resolve
issues with”. That seems to be a new phrase that we might pick
up outside this Committee.

To go back to
my previous question, the words reputation and leadership have been
mentioned a number of times this morning. I would be grateful to hear
the panel’s views on support for the exclusivity terms
unenforceable in zero-hours contracts.

Katja
Hall: We support the ban on exclusivity contracts. We
think that the UK’s flexible labour market is a
strength—that is one of the reasons that we have much lower
levels of unemployment than much of Europe—but we should not
condone abusive arrangements. We do not think exclusivity contracts are
acceptable and therefore we support the proposal in the Bill. We also
support the proposal to strengthen enforcement of the minimum wage. We
think that is very important. We should have effective enforcement of
employment rights.

Column number: 21

Mike
Cherry: We support the exclusivity proposals as
outlined in the Bill. As I said in my comments on
the previous question on this issue, there have been cases,
particularly for small businesses, where we believe it has been
beneficial, both for the employer and the employee. The Bill will deal
with the issue—and quite rightly so—as far as the larger
businesses are concerned and in the public sector, which, as I said, is
where I believe the abuse has happened in the past. As Katja said, we
support fully the enforcement of the national minimum wage because it
is quite clear from our members that the problem puts good businesses
at a disadvantage compared with those who do not abide by the
law.

Mike
Spicer: We also support the ban on exclusivity
arrangements in zero-hours contracts. This is something that we put to
our membership very recently, in quarter three of this year, as part of
our economic survey. One point to stress—I think Katja may have
stressed it earlier—is that we are not talking about a very
large number of businesses. Within our membership, only 11% report
using any kind of zero-hours contract, and of them, much less than a
fifth say that there would be any kind of negative impact from this
clause. So it is something that we can support. The principle is a
worthy one. We need to have a flexible labour market—we all
understand that—but it has to be fair to people on both sides of
the contract. This is a good balance.

As Katja
said, on enforcing the national minimum wage, again, it is impossible
to sit here and say that you favour people breaking the law. The people
who lose out from that, as well as the workers, are businesses who play
by the rules. There is definitely a strong sense in our membership that
where you have companies that transgress and are found out, they ought
to be punished. If there are ways that we can sharpen up the deterrent
effect, that is something that we should do.

James
Sproule: I echo the sentiment across the Committee. A
lot of the commentary around zero-hours contracts was at times an
objection to the whole concept. I think that is mistaken. It is part of
a very flexible labour market, which the UK has benefited from. Our
unemployment peaked at about 8.4% in the great recession. If you had
told me as an economist the depth of the recession we were going into,
I would have thought that our unemployment would creep towards 14% or
15%. So, thousands of people kept their jobs—maybe not the
number of hours they wanted, maybe not the conditions they
wanted—but they kept income and that is a very good thing.
Exclusivity is clearly one small element of the total that was
egregious and I think it has been addressed
effectively.

Q
42Chris
White: Thank you. I am pleased to hear your various
organisations’ support for this step. If I could come back to
Mike Cherry—you said, if I heard correctly, that the public
sector is one of the worst offenders in this area. Do you have any
examples of any bodies or local authorities that are particularly bad
in
this?

Mike
Cherry: I think I can answer that by just saying that
it is anecdotal. It is what people have said, but it is not evidence
from our members.

Q
43Ian
Murray: May I refer the Committee to my entry in the
Register of Members’ Financial Interests, before I ask this
question on directors? I have three unremunerated directorships
recorded there. This question

Column number: 22

is mainly to James. In your written response, you suggest, in terms of
director training, that there may be some remedy or rehabilitation that
could be done for directors who have been struck
off or disqualified. Can you give a few examples of
what that might look like and in what circumstances you would encourage
legislation to look at that? Where should disqualification mean full
disqualification for a longer period of
time?

James
Sproule: First, I declare an interest. The IOD
undertakes an enormous amount of professional development and training.
In my response, I wanted to make it clear that we have a potential
conflict of interest.

The whole
idea that people should be able to redeem themselves is a good one. If
people, having made a mistake, are willing to undergo further training
and learn from it, this is something that should be pushed forward. I
am afraid I do not have any examples of what types of courses might be
most appropriate for that. The reason we put the recommendation in was
the general idea that we want to encourage people to be
entrepreneurs.

One
of the constant differences cited between the United States and Europe
in general is that the United States is much more forgiving of having
made mistakes as an entrepreneur and they therefore have a much better
degree of entrepreneurialism. There is more evidence for that in the US
than we have here in
Europe.

Q
44Mr
Wright: I was interested in the British Chambers of
Commerce’s written evidence on public procurement. It
says:

“Our
one concern is that centralisation of standards and practices must not
be used as a stepping stone to further the centralisation of buyer
demands into large, nationwide frameworks. In practice these work
against SMEs by favouring companies with broad national
capability.”

In
this respect, Mike Cherry, are your members telling you that one of the
outcomes of this Bill would be to make it more difficult for small
businesses to gain access to tender for public procurement
contracts?

Mike
Cherry: That is not our understanding of the Bill, or
the way in which we would interpret it. You have the draft regulation
around pre-procurement coming in in 2015, which will also help towards
that issue. So that is not our understanding of the clauses in the
Bill.

Mike
Spicer: Just to be clear, we strongly support the
measures on public procurement in the Bill. We were saying that it has
been the experience of our members over the past few years that, in an
increasing number of places, initially in the devolved nations, but
increasingly in England where you have co-procurement by councils, that
they were finding it harder to bid for contracts that at one point in
time were largely
local.

We
would have liked to see in the Bill, as a way of mitigating some of
that trend, measures to make it easier for small companies to come
together as consortia. We certainly support the principle that some
measures like Contracts Finder make it easier to access opportunities.
However, to be able to compete effectively for those as a small
business, being able to come together as consortia is one really
important step that we have to look at
taking.

Jo
Swinson: I will move on to some of the measures on
employment later in the Bill, particularly around employment tribunals
and some of the challenges for the users of employment tribunals.
First, would you

Column number: 23

agree that the awards that a tribunal decides are owed to a particular
claimant should be paid in full? Do you think that the penalty that is
outlined for non-payment will encourage full payment more promptly?
Secondly, for small businesses in particular, do you have any evidence,
for example, from your members that frequent and late notice
postponement of tribunal dates causes difficulties for those small
businesses?

Mike
Cherry: On the employment tribunals, frequent delays
do cost our members, but I think that this needs to be put into
context. A very small percentage of our members are damaged by
tribunals, which is good news; but I am thinking about the frequent
postponement of tribunals—because it is not always necessarily
just the cost of having to attend a tribunal and then, obviously, if it
finds against the business, the subsequent fine or payment issues that
it may impose. It is the time that small businesses are having to go
through in preparing and processes. A postponement has a huge and
damaging impact on the business. Often it is just one person who has to
deal with all of this for small and micro-businesses.

What you have
got at the moment is something that was probably never intended,
although most of us suspected it would happen when the tribunal system
was first set up—that it would become such a process-driven,
legalistic body, which was never the intention. It was supposed to be a
fairly quick way to resolve issues between the employer and the
employee. I think we have gone well beyond that intention, to the
detriment of any small or micro-business that falls foul, often
inadvertently, of this issue.

I think where
you have got a persistent business that refuses to abide by the law, we
would say that they should have the full weight of the law thrown
against them, because they are, obviously, as I mentioned earlier,
disadvantaging those businesses that do try to comply. I think there is
a difference between helping a business that wants to comply to comply,
and those who just will not. Those who will not should have the full
impact of any fine imposed and enforced properly. I think where it does
cause a business that has inadvertently strayed into this area a
problem, then perhaps they should have the right to appeal, which is in
the Bill, and I fully support
that.

Katja
Hall: Yes, employers who knowingly break the law
should feel the full force of it. So, yes, awards should be paid in
full. We support the proposal on penalties; we think that could
encourage paying of the award in the first place, but it probably needs
to go hand in hand with just tougher enforcement, full stop. I think I
am right that the statistics show that around 37% of respondents who
did not pay the award cited insolvency, but half of those, then, had
started to trade under a different name, so there clearly is an issue
here that needs to be addressed.

We also
support the measures around limiting the number of postponements. I
think our overall view, though, is that these steps are welcome and
they are a step in the right direction. Ultimately we want to see a
tribunal system that is less legalistic, and we feel that, as part of
that, administration for the system should lie with BIS, not with the
Ministry of Justice. Our members

Column number: 24

report very much the view that the system has become more legalistic and
more like a labour court since the Ministry of Justice was given
responsibility for
it.

Q
45Jo
Swinson: Just on a point of clarity, Katja, you said that
businesses that have knowingly broken the law should pay their fines
and be held to account; presumably you think that even if that happens
unknowingly with some kind of employment law—the national
minimum wage has not been paid, and so on—businesses should have
to take responsibility for getting it
right.

Katja
Hall: Yes, clearly; but I think that it needs to go
hand in hand with helping small businesses, in particular, know what
their legal obligations
are.

Mike
Spicer: I do not have anything to add to that. We are
all in the same place,
really.

James
Sproule: One final point: the more legalistic our
members have found these issues the more likelihood there is of
reaching a settlement beforehand, and the more times people reach
settlement the more people are tempted to use the tribunal system as an
abuse, in an abusive manner. So a greater degree of clarity, a greater
degree of rapid, fair decision making on this would be extremely
welcome.

The
Chair: The last question and answer must be very brief. I
am afraid I have to cut you off at
10.15.

Q
46Andrew
Griffiths: This is just a very quick response to Mike
Spicer; Mike, you mentioned consortia and the difficulties in forming
them. Could you just give us an example of where that is happening and
why it is happening? Why is it difficult to form a consortium to bid
for the
contracts?

Mike
Spicer: There are a number of reasons, but one of the
main reasons is the inability to demonstrate a shared financial
history. You may have a number of companies that in themselves have had
a long history of providing to the public sector locally. You can
imagine, for instance, a number of, say, landscaping firms that provide
services to schools. A very large contract comes up that covers the
whole county, for instance, or something like
that.

Q
47Andrew
Griffiths: So what should we do about it? Very quickly,
because we have a minute
left.

Mike
Spicer: There are two things you can do. First, you
can use the power in this Bill, which is about being able to roll out
standards from the centre,
around—

The
Chair: Order. I am afraid that brings us to the end of the
time allotted for the Committee to ask you questions. I thank you very
much, on behalf of the Committee, for the evidence that you have
provided.

Examination
of
Witnesses

Iain
Birrell gave
evidence.

10.15
am

Q
48The
Chair: We will now hear from Thompsons Solicitors. For
this session we have until 10.45
am.

Welcome,
Mr Birrell. Could you please introduce yourself?

Column number: 25

Iain
Birrell: Yes, Mr Chairman. Good morning, everybody.
My name is Iain Birrell. I am a partner at Thompsons Solicitors. For
the better part of a decade I was the regional head of employment for
the
north.

The
Chair: Ian Murray is going to lead the questioning in this
session.

Q
49Ian
Murray: Hi, Iain. Good morning to you and thank you for
giving evidence this morning. I shall go through your evidence, if that
is the easiest way to structure this in terms of the order in which its
subject matter appears in the Bill, and examine some issues that you
raise.

On
whistleblowing, you say that you cautiously welcome the provisions in
the Bill but you have concerns about definitions of disclosure of
information. Will you tell the Committee why you are cautious about the
provisions in the Bill and what could possibly be done to strengthen
them?

Iain
Birrell: Certainly. All the studies in relation to
whistleblowing indicate that people are more likely to blow the whistle
if they feel that they are in a secure environment. So we would
cautiously welcome this as an attempt to create that secure
environment.

The
publication of reports could seek to promote that safe environment, by
making it clear that an organisation, or various organisations, are
taking matters seriously and are pursuing and investigating them. There
is a risk that the contrary may be proven by somebody looking at those
reports and considering that, actually, there is a lot going on in that
organisation that would worry
them.

In
relation to the definition of disclosures of information, I think it is
important to be very clear as to what is being proposed to go into the
report. The definition of whistleblowing at the moment is actually
quite a tricky one. My experience over the years is that there has been
a wide range of attempts to bring issues within the whistleblowing
definition, only some of which have been successful. That inevitably
means that some reports of whistleblowing are not actually reports of
whistleblowing at all and others indeed are. So if one of these reports
reflects simply reported matters, that would give one view of what is
going on in a particular sector or organisation. If it is a report of
matters which have been investigated and found to be actual, genuine
instances of whistleblowing, showing public wrongdoing, that would
produce a different type of report. Both kinds of report will give
different impressions. That is why I urge
caution.

Q
50Ian
Murray: May I take you on to employment tribunals and the
failure to pay sums? There was significant debate during the passage of
the Enterprise and Regulatory Reform Bill, about two years ago, about
the number of employment tribunal awards that are not paid. Most of
that was, of course, to do with insolvency, but some was to do with
just not paying. The biggest concern about bringing in fines for
non-payment was about whether that gets allocated to the
Government’s own books before the person who needs to be granted
the award is paid. You seem to raise that in your response as well.
This will obviously help, to a certain extent, in terms
of

Column number: 26

its being the stick, but is there not enough carrot in terms of the
legislation, as it is written, to get people to pay the
awards?

Iain
Birrell: I think that the clause as drafted is silent
on a few key issues. We would absolutely welcome any attempts to ensure
that outstanding employment tribunal awards are made. The system that
introduces the penalty system certainly, in our view, would encourage
some employers to make those payments and hopefully to do so in a more
timely manner, so that is something that we
welcome.

There
is an issue in relation to the reasons for non-payment. Insolvency
certainly is one. The difficulty with insolvency is that if you are
insolvent, you are not paying not because you are just being
mean-minded about it, but because you do not have the money. In
relation to those circumstances, the concern that I raised in the
document that was submitted was that if you simply add to the overall
debt pool, there is less in the way of distributable funds to go round
at the end of the day. The imposition of a penalty in those
circumstances could be counter-productive to ensuring that an
individual gets their
money.

The
research of 2013 discovered that 32% of respondents refuse to pay the
award simply because they do not want to pay the award, for whatever
reason. Hopefully these provisions would assist with that, but one
question mark does remain about the way they are drafted. What happens
in circumstances in which the employer pays the penalty over to the
Crown, but still refuses to pay the individual claimant themselves? We
have come across circumstances like that, in which employers have
basically said, “Over my dead body.” The current draft of
the legislation does not say what happens in those circumstances. It
does not indicate whose responsibility it is to carry on enforcing in
those circumstances. The definition of the outstanding debt says that
the debt is still outstanding, but if the Crown has got its share, it
really has no interest in pursuing it any further, so there is a
question mark over whether it would continue to apply pressure for the
main award to be
paid.

Q
51Ian
Murray: Are you suggesting that if a fine is levied on the
non-payment of an award, the award should be paid first, before the
fine?

Iain
Birrell:
Yes.

Q
52Ian
Murray: There would be encouragement for an employer who
did not pay the award to get the Treasury off their back first and then
still not pay the outstanding compensatory
award.

Iain
Birrell: If the purpose of these measures is to try
to ensure that a person who has been made an award receives it, and
bearing in mind that they will have been made an award because a
judicial body has found that they were wronged and are therefore owed
an award, I see no good reason why that should not take priority in
terms of the two sums that are taken forward. If the purpose of the
penalty is to produce that payment, logically that payment needs to be
the one that is paid
first.

Q
53Ian
Murray: Could I examine briefly two other issues? Could
you give us the benefit of some of your professional experience of
postponements of employment

Column number: 27

tribunals? You touched on that in your response in suggesting that the
current legislative framework would be sufficient if only it was used
in the manner for which it has been written in terms of postponements
and so on. Then I want to ask you a few questions about zero-hours
contracts, but will you talk about postponements in the first
instance?

Iain
Birrell: Certainly. First, in relation to
postponements, it is important to bear it in mind that there are
postponements and there are postponements. The tribunals and the
employment judges who operate them are subject to the overriding
objective—the overriding objective permeates
everything—which is to do justice, to do things fairly. That
means that when you receive a postponement application, it needs to be
considered on its
merits.

When
you look at what comes up as a postponement application, you see that
they vary. Some are very much what the Bill appears to be
targeting—people are simply not ready when they should be and
they make an application because they are simply not ready to go. Very
often that is last minute, and experience suggests that it can be
simply because someone has done absolutely nothing in the intervening
period, or it can be that they have been running themselves ragged but
have simply got a period of time that is not realistic to the task in
hand. At other times postponements can come up because someone has
fallen ill, and in those circumstances they
occur.

A
couple of years ago, and around that sort of area, we had a rash of
postponements that were caused by the employment tribunals themselves.
They were double-booking rooms because they had more hearings to book
than they had rooms to book them in, and we would find ourselves with
last-minute postponements initiated by the employment tribunals. Now
that the volume of cases going through the employment tribunals has
reduced, that is not an issue any
more.

Q
54Ian
Murray: That is incredibly useful; thank you. Could I
finish off with zero-hours contracts? You will have heard the previous
evidence panel suggesting that the Bill’s provisions on
exclusivity in zero-hours contracts were welcomed. You call it a missed
opportunity. Will you unpack for the Committee what else could be in
there to ensure that this is not a missed
opportunity?

Iain
Birrell: The provisions in the Bill at the moment
deal with exclusivity and that is great. I can see no justification for
exclusivity in a zero-hours contract; there are other ways of achieving
that. However, a feature of the zero-hours contract which is key to the
way it operates is that it provides a complete lack of certainty in a
situation in which there are no employment rights. It can lead to an
enormous abuse of that situation. The standard justification for
zero-hours contracts is that they are necessary in order to address
short-term needs. The standard argument is that when a colleague rings
in sick in the morning you need someone to cover; it is that sort of
situation. However, in reality many zero-hours contracts are not used
in that way at
all.

The
Chartered Institute of Personnel and Development research of last
November noted that 83% of staff on zero-hours contracts have been
engaged for longer than six months and 65% have been engaged for two
years or

Column number: 28

more. We have a situation, then, in which 65% of staff on zero-hours
contracts have been there for two years or more. That is not short-term
need; that is a situation in which people are turning up for work day
in and day out and I see no real good reason—and Thompsons see
no real good reason—why they should not be placed on an equal
footing with everybody else who would turn up for work in those
circumstances, and receive the same employment rights as are available.
The thing that prevents and gets in the way of that is the existence
and use of zero-hours contracts. Thompsons believe that it would be far
better to abolish the zero-hours contract regime
entirely.

Q
55Sheryll
Murray: I take you back to a briefing on the Bill
published by your firm about the penalty provision. It said that it was
inexplicably limited in scope. Will you expand on
that?

Iain
Birrell: Certainly. As I understand the provisions,
the definition of the relevant sum—the debt owed and sought to
be recovered by these provisions—does not cover any costs award
that has been made by the employment tribunal. That seems to me to be a
very odd omission. In the employment tribunal, costs do not follow the
event as they do in the courts system. In the courts system, if you win
you can expect the other side to be ordered to pay your costs. In the
employment tribunal, however, costs are very much more of a sanction in
the sense that you have done something wrong, pursued a case improperly
or argued it improperly or in a way which has been vexatious or a
nuisance to the tribunal. It is therefore very much a pejorative
thing.

To
obtain a cost award is very rare in employment tribunals. The last set
of statistics I saw suggested that only about 0.05% of cases ended up
with a cost award in favour of the claimant and the figure is not that
dissimilar for respondent cost awards. It seems to me inadequate,
therefore, that a definition should not include a costs award. It has
been an adjudication of a judicial body which considers it to be
appropriate, it has been awarded and you have gone to the effort of
arguing that at some cost—because there is always a cost
involved in arguing a costs award; it is often a separate
hearing—so it is difficult to see why that should not also be
included as part of the definition of the debt which would be subject
to the penalty
regime.

Q
56Andy
McDonald (Middlesbrough) (Lab): I declare an interest as a
former employee of Thompsons. Going back to the issue of the penalty,
it is set at 50% of the sum owed, with a minimum of £100 and a
maximum of £5,000. Is that maximum of £5,000 going to
impact sufficiently when a higher award is made? Secondly, given the
introduction of tribunal fees and the remarks you have made about costs
generally, is there any merit in introducing a cost recovery scheme
into the tribunal system and making costs follow the event? Finally, on
the issue of the penalty being paid to the state, as I read it, at the
end of the line, once the penalty is imposed along with whatever other
sanctions the tribunal may make, that debt just sits in the lap of the
claiming party to recover. There is no secretariat or system to enforce
it, so have we got that right, in that the penalty is paid to the state
rather than the claimant? Is that the right
approach?

Column number: 29

Iain
Birrell: Gosh! Let us go through those in turn, then.
First, is the £5,000 severe enough? I think in some
circumstances, it will be. In terms of the figures for the average
unfair dismissal award, the average is about £5,000 itself, so
half of that is nowhere near the £5,000. I think that statistic
predates the recent change, bringing down the maximum unfair dismissal
to be capped at a year’s salary. Currently, the average
year’s salary is about £26,000 for the average UK
worker.

Where it will
have difficulties in causing an impact could be in some of the
discrimination awards. Discrimination awards are uncapped and they can
be higher. They include, obviously, the injury to feelings awards,
which are awarded according to a set of guidelines known as the Vento
guidelines. They can run from as little as £500 or £600
all the way up to £25,000. That is quite a large range. The top
end of that is quite unusual; it is for the very severe and persistent
campaigns of discrimination, but nevertheless, they do exist.

In
discrimination awards, you can also have lost earnings, and those can
be very high. To give you an example, I ran a case a few years
ago—we had a sex discrimination case against a local authority.
The chief executive had ended up having a vendetta against this
individual. That is basically what the tribunal found and we ended up
securing half a million pounds for this individual on the basis of full
career loss, because not only had he got rid of her from the authority,
but he had made sure that she could not get a job anywhere else, so
there was career-long loss. We also got a costs award of
£125,000. In those circumstances, a £5,000 slap on the
wrist is not going to make a hill of beans’
difference.

The other
concern that I would have about the £5,000 impact is in relation
to multiple awards. When I talk about a multiple award, I mean where we
are running a claim for lots of individuals. We see them quite a lot.
Thompsons is a union firm. We often deal with mass organised claims and
with consultation claims. They are your typical large claims, but you
also see other large litigation, such as that being run for the airline
pilots or for equal pay. In those, you can have hundreds and sometimes
thousands of individuals. At the moment, the Bill’s provisions
allow for regulations to be made to treat all those individual awards,
so if I run a case for 500 people and each of those gets an award of
£1,000, for instance, that is £500,000. The Bill
currently allows for regulations to treat that as one outstanding debt
and not 500 outstanding debts, and for one penalty to apply to that. In
those circumstances, that would not be a very effective incentive to
get that paid within an appropriate time frame. I hope that answers
that part of the question.

In relation
to the cost recovery scheme, I think the question was whether we would
want to move towards a system where costs follow the event in the
employment tribunals. No, I do not think so, is the answer to that one.
As much as it has become complicated—I think the earlier
evidence session indicated that it has become very complicated and
complex—it is nevertheless run on the basis that it is an
environment where people can go to seek justice in circumstances where
very often they are at their lowest financial ebb. Most of the people
who have gone to an employment tribunal have just lost their jobs, for
instance. They are worrying how to pay the mortgage or the rent next,
or how to put foodeb;normal;j on the
table. If they are deterred from

Column number: 30

enforcing the rights that Parliament has given them by having a costs
regime, that is something we would not be keen
on.

Q
57Andy
McDonald: They would be deterred by the fees that they
have to pay up front and the tribunal fee.

Iain
Birrell: The fees up front are already a big
deterrent. We saw in the period when fees came in, but before the ACAS
early conciliation came in—so there was no overlay effect
there—a very significant drop in claims being brought, and that
was down to fees. If there was a cost regime in employment tribunals,
that would have an even more substantial effect in that regard as well.
I think that would be the firm’s position on the
cost-following-the-event scheme.

Q
58Andy
McDonald: It is the state that received the
penalty.

Iain
Birrell: Yes. There were two other parts to that. On
the penalty to the state, this is an unclear part of the Bill. When
considering it, I was also considering the other penalty that came in
recently under the Enterprise and Regulatory Reform Act 2013. There are
provisions for a penalty in there when the employer’s
behaviour—you will have to forgive me, I cannot remember the
exact phrase, but it is basically bad behaviour—exacerbated the
problem. In those circumstances, again, the penalty goes to the state,
but it is down to the individual claimant to make the application for
that penalty in the first place. I cannot see any enforcement
provisions to recover that, other than the claimant doing it, when
there is no real reason for it to do that. I worry that a similar
situation is being set up in the current drafting of the Bill, meaning
that the claimant needs to make the running. I do not see a point in
the Bill where the state steps in and says, “Right, we’ve
got it now. We will run with this and press it forward until we are
both paid.” The way I read it at the moment is that it implies
that the running is still with the claimant, and not only have they not
been paid and must enforce their own award, but they must also try to
enforce the Government’s
award.

Q
59Toby
Perkins: On the employment tribunal, I wonder whether you
have any statistical analysis of the impact of what has already
happened, and potentially the lesson that might teach us about what
might happen in the future in terms of the number of people who go to
tribunals now. Do you have any analysis of how many cases went through
tribunals previously, how many go through now and what the success rate
has
been?

Iain
Birrell: Thompsons does not keep that information.
What I can tell you is that those statistics are generally collated by
the MOJ. What we have seen and the chronology of it is that fees came
in and then there was a period of several months before the ACAS early
conciliation came in. We are only just coming into the period when
statistics are coming out in relation to the latter of those two
events, so the statistics we have at the moment are purely in relation
to the impact of the fees. Overall, claims lodged with the employment
tribunals dropped by something like 79%, a very high level. Within
that, various claims dropped off more than others, so we saw
discrimination claims dropping off far more than wages claims, for
example, and breakdowns have been done that demonstrate
that.

Column number: 31

In terms of
what has happened, the drop in numbers has been significant. At the
moment, that seems to be just in the figures that deal with the impact
of the fees, and the figures for the impact of the fees plus early
conciliation are due to come out.

Q
60Toby
Perkins: The likelihood is that the amount an employee
will get from a tribunal will be linked to how much they were paid, so
I would imagine that, putting words in your mouth, people on relatively
low incomes will be much less likely to pursue a case because the
financial disincentive will be much greater. So you had a huge drop-off
and what it potentially means—I am interested in your view, so I
will try to turn this into a question—is that people on low
incomes are effectively much less likely to have access to justice in
this regard. For people who are pursuing a case because they have lost
a £200,000 job, the fees are probably less of a disincentive, so
the employment tribunal will become a rich man’s game. What was
intended to get rid of frivolous claims actually sweeps out a whole
raft of people who will never be able to seek employment tribunal
justice, does it
not?

Iain
Birrell: Does it not? Well, Thompsons is a firm that
acts for trade unions. One of the responses to the introduction of the
fees in the employment tribunals has been to ensure that the fees do
not present a problem for trade union members. Given that Thompsons
deals with such people, we have not seen a particular drop-off caused
by that. We represent hundreds and thousands of tribunal claimants
every year. At most of the employment tribunal venues around the
country, you will probably see a Thompsons representative on any given
day, because we have that sort of presence. That is not blowing our own
trumpet. That leads me to think that when you look at the rest of the
drop—the 70-odd% drop—you are looking at the people who
do not have that backing and are indeed put off by the fees. There is a
big disincentive. Yes, that is causing a lot of people not to go to an
employment
tribunal.

For
the very high wage earners, tribunals were always slightly tricky. If
you were looking at an unfair dismissal situation, your claim was
always capped, anyway. It was capped at about £12,000 when I
started doing employment law. It went up to £70,000-plus. It is
now down and is capped at a year’s wage. That is a disincentive
as well. The problem is getting access to the
forum.

Q
61Chris
White: Do you think the changes to the national minimum
wage fines will deter employers who continue to underpay their
staff?

Iain
Birrell: I don’t know. It is not an area of
the law that I have any professional dealings or experience with. In my
experience of fines and penalties generally, as a matter of course they
are not imposed at the maximum levels. They are imposed at a much lower
level. I am not really able to comment on how much tinkering around
with the top limit will affect what I would anticipate to be the bulk
of fines levied at a lower
level.

Q
62Mark
Garnier: May I come back to zero-hours contracts? I want
to follow on from Mr Murray’s questions, in answer to which you
very kindly unpacked your thinking. You welcome some measures, but feel
that there are missed opportunities more generally. You

Column number: 32

talked about a CIPD report. I think 83% of the staff had been on
zero-hours contracts for more than six months, and 65% for more than
two years. That is an interesting statistic. Of those 65% who had been
on them for more than two years, what proportion of people wanted to be
on them because it suited their lifestyle? Do the data unpack
that?

Iain
Birrell: I think they do, but unfortunately I do not
remember the figure off the top of my head.

Mark
Garnier: You can use a ballpark
figure.

Iain
Birrell: I recall the report indicating that among
those people there was a certain satisfaction level. I cannot remember
what it was. I am not dissembling. I genuinely
cannot.

Mark
Garnier: But it was not vanishingly small or huge? It was
not a remarkable
number?

Iain
Birrell: I do not think it was at one end or the
other, but it was one of those figures of the order where the balancing
opposition figure was quite
significant.

Mark
Garnier: So more people did not enjoy than did
enjoy.

Iain
Birrell: I don’t remember. It was one of those
middling figures where it does not really swing it to say that people
like zero
hours.

Q
63Mark
Garnier: I don’t want to push you too hard.
Obviously, it is difficult for you if you do not have the numbers in
front of you, but is it not the case that with things like zero-hours
contracts, partly they are responding to workers’ needs and
partly to previous legislation and employment laws? It becomes the
nature of society to react to constrictions in one place by finding a
space to go to. Do you think zero-hours contracts have come as a result
of over-tight employment
regulation?

Iain
Birrell: I would be cautious to confuse cause with
effect on that one. I think the research demonstrates that there are
people who like to be able to pick and choose what they are doing. The
research that I can recall indicates that quite a lot of the people in
these circumstances were students who were able to fit it in around
what they needed to do on a day-to-day basis. Often, there were retired
individuals as
well—

The
Chair: Order. I am sorry to interrupt, but I have to bring
this session to an end. I thank you very much, on behalf of the
Committee, for the evidence that has been
provided.

Examination
of
Witnesses

Alexander
Jackman and Philip King gave
evidence.

10.45
am

Q
64The
Chair: Will the witnesses please introduce themselves for
the record?

Alexander
Jackman: Good morning. My name is Alex Jackman. I am
head of policy at the Forum of Private
Business.

Column number: 33

Philip
King: Good morning. I am Philip King. I am chief
executive of the Institute of Credit
Management.

Q
65Toby
Perkins: I will start with clause 3 and late payments. We
heard earlier from many of the business representative bodies that, in
their eyes, the issue of late payments is escalating and has not been
resolved by measures such as the EU late payment directive or the
prompt payment code. Mr King, you say that the Bill ducks the issue of
unfair payment terms. Could you expand on that?

Philip
King: That was a response to a specific issue in the
Government’s response to the consultation on building a more
responsible payment culture at the turn of the year. It was
specifically around two issues: first, the definition of
“grossly unfair”, which is difficult to put your finger
on—whether it is a particular length of terms or
whatever—and, secondly and more importantly, the failure to
transpose paragraphs 4 and 5 of article 7 of the directive, which
provide for the opportunity for business representative bodies to bring
an action against a business that imposes unfair payment terms. That,
as far as I understand, has yet to be transposed, so this is a missed
opportunity.

Q
66Toby
Perkins:Alex, your organisation has spoken a great
deal about the issue. Could you take us through why you think the
existing tools have not lead to an improvement in the situation with
regard to late payments? Do you think that the Bill will take us to
where we need to be?

Alexander
Jackman: To our minds, the biggest issue remaining
for small businesses in tackling late payment is anonymity and a fear
of putting their heads above the parapet and challenging, using the
legislation that is out there, in case they lose future contracts. We
are clear that we want to get to a position in which we can somehow
maintain the anonymity of a business when challenging, and that is
where, for us, article 7 is crucial. Our reading of it places an
obligation on the member state to put in place a mechanism that allows
a business to maintain anonymity by going through a business
organisation such as ourselves, or many others that are out there, to
challenge on their behalf what might be seen as grossly unfair. To my
mind, that does not yet exist. We want to be able to get to a place
where a member of any organisation can go to their representatives to
say that they believe that what is happening to them is grossly unfair
and then ask their representative to challenge that, in whichever court
that might be. We are talking about not challenging a specific
contract—the sums involved—but challenging the principle
of a change that has been made so that the business would maintain its
anonymity.

Although the
main measure in the Bill is good, it does not tackle the anonymity
issue, and that is something we would like to see the Bill go further
with. The specific measure in the Bill about companies putting out
their payment times and terms in annual reports is crucial. I will
explain very quickly why I feel that is the case. I will not name the
company, but around Christmas, a company extended its payment terms
from 60 to 75 days. The company is a member of the prompt
payment code, and we challenged its status following that extension. I
think the justification given for making the extension was that it
brought the company in line

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with the industry average—the terms were similar to that. We
asked the company to define the industry average and it came back to us
with one example of a company that paid in 15 days and one example of a
company that paid in about 120 days, saying, “We fall in between
those two.” That was the company’s definition of falling
in line with the industry average. We think getting more information
into the public domain about payment terms and times will be a much
stronger check against which we can judge companies that choose to
extend their payment
times.

Q
67Toby
Perkins: How much confidence would people have in that?
There is anecdotal evidence that major supermarket chains have very
long payment terms but state that they pay within 27 days. I have
spoken to many small businesses that supply those supermarket chains
and I cannot understand how the supermarkets can possibly cite that
figure. Do you think there is confidence that, under the Bill, what is
quoted will mean something to the people who receive those
payments?

Alexander
Jackman: As long as we are prescriptive about what
they are releasing, and as long as the terms and times that they put
down are standardised, it will be readily comparable. Hopefully that
will address the sort of issue that you are
raising.

Philip
King: May I interject? Alex is right that if you
quote the average payment terms on which a business makes its payments
and there is a range of suppliers for things from rent through to
window cleaners and wholesale suppliers, you are always going to have a
number that, frankly, is not very meaningful. It is important that the
Bill’s measures are implemented in such a way that it is not
just about a number, because numbers can be massaged at the end of the
year—they can be tweaked to say what we want. It is more about
the policy and ethics of a business, and there are some good examples
out there. Over the weekend, I was looking at some examples on the web
of businesses that go much further than anyone else by saying exactly
what their policy is, how they treat their suppliers and why that is
important. The reporting bit may need to include some absolutes, but it
also needs to include some commentary about how businesses treat their
suppliers, and why they do so, so that suppliers can have confidence
about how they will be
handled.

Q
68Toby
Perkins: On where the onus lies, there is widespread
agreement that one of the problems at the moment is that small
businesses have to pursue big businesses, risking the loss of their
contracts and damage to their relationships. Do you see anything in the
proposals that remove a small business’s ultimate responsibility
to pursue a large business? Is there anything that will change that
balance of power in the relationship so that big businesses can be held
to
account?

Philip
King: I guess the simple answer is no. The reality is
that there is no silver bullet. There is no one measure that would
change this. There was much talk earlier about culture, which we need
to change from top to bottom. Let us not forget that it is not always
big businesses that treat small businesses badly. That happens across
industry, and we need to make sure that, from top to bottom, the
culture is changed. In my mind, it is important that these measures
complement other things that are happening. Outside the Bill, there are
proposals

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to strengthen the implementation of the prompt payment code. The
Institute of Credit Management runs the code for
BIS, and we are currently talking to BIS about how we might do that.
There are some exciting opportunities for making the code far more
meaningful to small business. This is also about sharing good practice
and getting people to do the right thing. Many small businesses do not
get paid because they fail to invoice properly in the first place. We
have to educate businesses to behave in a way that makes it easier for
them to do business. Will this Bill resolve those issues? No, it will
not. Will the Bill contribute to resolving those issues? I believe it
will.

Q
69Toby
Perkins: Alex, do you want to comment on where the onus
lies and if steps are being taken in that
regard?

Alexander
Jackman: The Bill has two positives. First, when we
are talking about enforcing 30-day payment terms down public sector
supply chains, there will be a benefit for small businesses. As far as
the private sector is concerned, the Bill does not tackle the anonymity
issue. However, getting companies to release their payment times and
terms is a tool that we can use on behalf of our
members.

Q
70Nicola
Blackwood: Mr Jackman, we have had some debate about the
Bill’s proposed reforms to zero-hours contracts. Do you think
that the Bill should go further and require that anyone with a
flexible-hours contract who keeps it for a certain period should
automatically move to a fixed-hours contract?

Alexander
Jackman: In the work we have done with our members on
this, the only element of zero-hours contracts that came out fairly
robustly either way was exclusivity. They were happy to see exclusivity
go, as far as small businesses were concerned. In terms of going
further, I think the issue is that if you are looking at where
zero-hours are overused, I would argue that that is very much in the
large business and corporate environment. They are the kinds of
business that have robust human resources policies in place that will
identify when an employee is getting close to that threshold, and I am
in no doubt that some of them will put processes in place to move those
people on before they reach the threshold.

In a small
business that does not have that HR control, those employees might
accidentally fall into being permanent members of staff, when actually
all the business wants from them is seasonal support or, for a
start-up, expertise on a temporary basis. My problem with zero-hours
contracts becoming a more permanent fixture is that I feel it would
catch out small businesses that use zero-hours contracts
proportionately, while not addressing the major issue, which is their
overuse by large
companies.

Q
71Nicola
Blackwood: What do you think, Mr
King?

Philip
King: I have nothing to add, really, to what Alex has
said. It is not an area of ours. We do not have members in that sense,
so it is not something that comes under my
area.

Q
72Mark
Garnier: Mr Jackman, I do not know whether you were here
during the previous evidence session, but we started talking about
zero-hours contracts

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at the very end of it and looking at the demand for them, as opposed to
the supply of them, and at the fact that 65% of such employees are on
them for more than two years. Do you have any thoughts about the fact
that people actually enjoy these things and use
them because they allow flexibility in their
lifestyle?

Alexander
Jackman:No, I know. There are employees for
whom zero-hours contracts work, yes. There is absolutely no doubt of
that.

Q
73Mark
Garnier:Do you think it is possible that we could
over-legislate and do away with something that actually provides a
useful bit of flexibility in the labour force?

Alexander
Jackman: Our members would suggest that there is
always a danger that the Government will over-legislate on anything,
yes.

Q
74Mark
Garnier:Areyou happy that the proposals
within the Bill identify the right problem, first of all, and then
tackle that problem in the right way?

Alexander
Jackman: From the polling that we have done of our
members, they would not mind losing exclusivity. We looked into a
primary employer status, with the idea that an employee would have to
work so many hours for their primary employer, but would not be
restricted from going to other employers for hours above and beyond
that, but I think that would probably just add more complexity to the
regulation, and I do not really want to do that to our
members.

Q
75Mark
Garnier:That is a relief. Finally, do you think
that the Bill’s definition of a zero-hours contract is correct?
As a supplementary, do you think that, with the proposals for
exclusivity, some less scrupulous employers might try to step around it
with another measure?

Alexander
Jackman: I have absolutely no doubt that employers
would find a way to recruit people on a short-term, flexible basis if
zero-hours contracts were removed. However, in terms of whether the
definition is correct at the moment, I might defer to an employment
solicitor. I am not quite sure.

Q
76Ian
Murray: May I stick to the issue of zero-hours contracts
briefly? You mentioned a level playing field in a previous answer. Is
this a level playing field issue for business? If you had two
comparable hospitality or retail businesses operating in the same
sphere—perhaps on the same high street—and one was
operating with zero-hours contracts and another was operating with full
employment contracts, paying minimum wage and complying with all the
necessary regulatory requirements, would that become a level playing
field issue? Would businesses that had a majority or all of their staff
on zero-hours contracts have an unfair advantage through exploiting
exclusivity clauses and the use of over and understaffing? Should we
use this as an opportunity to create a level playing field for all
businesses?

Alexander
Jackman: I would argue that it is at least the
business’s decision as to how it wants to be viewed by the
employees who work for that business. I might

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reflect on that, if that is okay, and come back to you. I think that it
would create an unfair playing field, but it is still a
business’s choice to make as to how it employs
staff.

Ian
Murray: Yes, of
course.

Q
77Oliver
Colvile: Thank you very much for coming. At one stage in
my life, I ended up working on a freelance basis. How can we protect
private companies to make sure that they have people who are not going
to work for a competitor at the same time as working for them? I am
looking at how we can try to ensure that people do not suddenly go and
talk to a company’s competitors about other things that are
going on in that company.

Alexander
Jackman: I think that would just require a drafting
of the contract that they had. I hope that businesses that are our
members and those of other organisations will get easy advice about how
to word their contracts to prevent something like that. As far as I am
aware, the Institute of Directors is the body that is speaking out most
against the loss of exclusivity, for exactly those reasons, so it might
be a question to address to it. Did it give evidence before us? I hope
that that question was addressed to the
body.

Q
78Mark
Garnier: Moving on from zero-hours contracts, do you
support data-sharing between banks with credit reference agencies? Is
that a healthy
measure?

Philip
King: Absolutely I do. Creditworthiness and credit
assessment are critical to the supply of finance to small businesses in
particular. We have seen over a long time period thresholds rising in
terms of what defines a small company, a medium company and so on. The
removal of the need to report has resulted in a paucity of information
being available for suppliers to make decisions. I recognise that the
proposal in the Bill is around banks providing information to credit
reference agencies to then provide it to other finance providers. We
should not forget that trade credit is a bigger provider of finance to
business than the banks are, and this does not go as far as allowing
the information to feed its way down to trade credit suppliers.
However, it will get to the credit reference agencies, informing their
decision making and how they score businesses, so ordinary trade credit
suppliers will have a stronger view of businesses that are coming to
them for credit. If more information is available, more and better
decisions are made, which can only be good for the economy and for
business generally.

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Q
79Mark
Garnier: Do you have any concerns about how the data might
be
used?

Philip
King: No, I do not, if I am honest. I
think—

Mark
Garnier: Let me give you an example. Somebody could find
out a credit reference for a competitor small business. There may be a
less than favourable one, and if that information were broadcast among
potential customers, it could be an unfortunate use of that data. It
might even be an illegal use of data, but the information would be out
in the open space.

Philip
King: That is true, but in any event, any business
can get a credit report on any other business. Depending on the size of
the business, it can get company accounts as matters of public
information, so the information is out there
anyway.

Q
80Mark
Garnier: Under clause 5, the Treasury can extend the remit
of the financial regulator—the FCA—to include the
enforcement of the provisions. Do you think that is a good measure?
Does that satisfy any worries you may have
had?

Philip
King: I am fairly ambivalent about that. I think it
is a measure that only
enforces.

Q
81Nicola
Blackwood: What are your views on invoice financing and
cheque imaging? Do you think that these will be positive measures for
businesses? Will they improve cash flow and access to
finance?

Philip
King: I think invoicing and financing are key. This
was raised earlier. Any access to finance is important, and anything
that restricts that should be curtailed. The removal of the incitement
clause and so on is a really good thing. That is a sort of contract
clause that tends to restrict things and is actually not there for any
good reason, so it is good to get rid of it. In terms of cheque
imaging, anything that speeds up the banking process has to be
welcomed, and anything that makes that simpler and easier must be good.
So, yes, we are very
supportive.

The
Chair: If there are no further questions from Members, I
thank the witnesses very much for their evidence this
morning.